# ECON 6351 Economics for Managers

ECON 6351 Economics for Managers
Homework 2
The homework covers the textbook Chapters 7, and 10-14. Homework assignment must be your individual work. Copying answer from the others will violate ACADEMIC HONESTY policy to cause a failing grade. Please show the derivation process (if applicable) and highlight the answer for each question. Limit your answers within 6 pages in a file of either MS Word or MS Excel. No other format will be accepted. No cover sheet is required.
Chapter 7
Q1: (10%)

The figure shows the demand and cost curves facing a monopoly in the short run. Please find out
(a) the optimal output for profit-maximization and the monopoly price, and
(b) the maximum profit.
Q2: (5%)
If the on-campus demand for soda is as follows:

Price (per can)
\$0.25
\$0.50
\$0.75
\$1.00
\$1.25
\$1.50
\$1.75

Quantity demanded (per day)
100
90
80
70
55
45
40
The marginal cost of supplying a soda is \$0.50. What price per can will students end up paying in a monopoly market?
Chapter 10
Q3: (10%)
Suppose the following data describe a nations population

Year
Year 1
Year 2

Population
300 million
305 million

Labor Force
140 million
150 million

Unemployed
7 million
8 million
(a) What is the unemployment rate in each year?
(b) Please provide one possible reason to explain the change from Year 1 to Year 2.
Q4: (5%)
According to the data below, please calculate the inflation rates in 2018 and 2019:

Year
2017
2018
2019

CPI
242
247
251
Chapter 11
Q5: (10%)
Please use classical model AD-AS analysis (i.e. state AD,SRAS or LRAS shift rightward or leftward)to predict the impacts on price level and real GDP in the U.S. for each the following event:
(a) Government increases defense spending
(b) Virus pandemic damages all the states
Q6: (5%)
Draw a conventional aggregate demand curve on a graph. Then add three different aggregate supply curves, labeled
AS1: Horizontal curve
AS2: Upward-sloping curve
AS3: Vertical curve
all intersecting the AD curve at the same point.
If AD were to increase which AS curve would lead to the least inflation? Show the graph roughly.
Chapter 12
Q7: (10%)
(a) If the marginal propensity to save is 0.02, how large is the Keynesian multiplier?
(b) If the marginal propensity to save doubles to 0.10, what happens to the Keynesian multiplier?
Q8: (10%)
Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary fiscal policy as
(a) cutting taxes by \$10 billion, then by how much would total spending increase over an infinite period?
(b) spending \$10 billion, then by how much would total spending increase over an infinite period?
Chapter 13
Q9: (5%)
If a bank has \$10 million in checking account deposits, how much lending capacity (authority) it can create for the whole banking system given the required reserve ratio is (a) 5 percent? (b) 10 percent?
Q10: (10%)
Mr. Sam Lucky lives in Houston Texas and always deposits money into check account in a bank nearby. Please calculate the money creation in the U.S. banking system with required reserve ratio at 0.20 in each of the following cases:
(a) Sams parents wired him \$100,000 from Japan.
(b) Sam won \$100,000 from Texas lottery.
(c) Sam found \$100,000 worth collectable coins underground at his house.
(d) Sam got a \$100,000 check which is issued in a U.S. bank from his aunt as gift.
Chapter 14
Q11: (10%)
Assume that the following data describe the condition of the commercial banking system:
Total Reserves: \$80 billion
Transactions deposits: \$800 billion
Cash held by public: \$100 billion
Reserve requirement: 0.10
(a) How large is the money supply (M1)?
(b) How large would the money supply be if the banks fully utilized their lending capacity?
Q12: (5%)
Suppose the Federal Reserve decided to purchase \$10 billion worth of government securities in the open market.How will the lending capacity of the banking system be affected if the reserve requirement is 10 percent?
Q13: (5%)
Assume an economys annual money velocity in circulation is 10. Please answer the following two questions:
a. If the annual nominal GDP is \$20 trillion, how much money supply are enough for money demand?
b. In the view of monetarists (i.e. neoclassical view), if the annual economic growth rate is 5%, what should be the money supply increasing rate to maintain a low inflation rate as 2%?

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